1. Field of the Invention
This invention relates generally to transaction payment systems and methods and, more particularly, to a rechargeable value payment card linked to a trust account containing one or more agglomerated virtual accounts, that may be processed by merchants in a similar manner as a conventional debit card.
2. Description of the Background Art
A number of financial instruments have been developed that allow parties to transact business, such as purchasing goods and services, bill payment, and the transfer of funds between parties without a requisite need to carry significant amounts of cash. Historically, the bank draft was one of the original payment instruments that enabled individuals to offer a merchant, or related party, a document which authorized the bank on which it was drawn to deliver to the payee those funds specified on the face of the instrument, which were in turn removed from the account of the payer. The transaction process between the payer and the payee, such as customer and merchant, being mediated by the bank. The practice of utilizing these drafts evolved and the creation of formalized payment “documents” arose which contained standardized placement of selected transaction information, such as the date, payee name, transaction amount in both numeric and scribed forms, and information describing the payer account (such as an account number), along with the signature of the payer. The aforementioned payment instruments became commonly referred to as “checks”.
One advantage of a formalized payment instrument, as opposed to a handshake, or verbal transaction, was that it facilitated a standardized and equitable transaction under a large number of circumstances. A common event encountered with the use of checks is that of the payer having insufficient funds in the account upon which the check is drawn, the condition being referred to as “non-sufficient funds”, or “NSF”. The bank must either reject the transaction and return the check to the depositor, or may alternatively extend credit to the payer in an amount sufficient to cover the deficiency, whereupon funds may be disbursed to the payee in the amount of the check.
The service of providing a credit extension is typically charged to the payer in the form of transaction fees and finance charges on remaining credit balances. The extension of credit by financial institutions has evolved into various products within an enormous credit industry. The practice of extending credit to depositors in the amount of the purchase, to be repaid over a period of time, became known as revolving credit and led to the introduction of various charge cards and credit cards. It will be appreciated that charge cards and credit cards are both a form of payment card that enables the customer of a financial institution to make a series of purchases as a cardholder from one or more merchants or service providers. A cardholder using a charge card or credit card is expected to remit payment for the purchased goods and services in response to a time deferred billing. Often a credit card allows the cardholder to pay only a portion of the principle and carry-over a debt balance from one month to the next, so long as a specified minimum payment is remitted and the debt does not exceed the credit limit for the account. It will be appreciated that the total expenditures for purchases made with the payment card are applied to a credit, or charge account, thereby increasing the financial obligation of the cardholder to the issuing bank. In contrast, the expenditure for each purchase for which a check is tendered as payment is directly extracted from the purchaser's checking account when the associated check clears the bank. When the debt of a credit card balance is carried forward, the cardholder is financially obligated to make payments to the issuing bank according to the interest and minimum payment terms of the cardholder contract until the debt has been fully paid. The terms and conditions upon which such a line of credit is issued typically include a specified amount of credit to be extended, a specified term over which the balance will be repaid, an interest rate, a compounding method, and a minimum periodic payment of principal and interest. Credit card usage provides a convenience for the purchaser while providing a lucrative source of revenues for the issuing institution. Studies have found that consumers spend more freely with charge card purchases wherein merchants that accept credit cards are more able to reach profitable sales volumes. It will be appreciated that the proceeds from charge card interest payments can account for up to about seventy five percent (75%) of total profits for associated financial institutions. At present, the ten largest institutional credit card issuing banks receive approximately twenty five billion dollars ($25×109) in profits annually from credit card interest. In addition, other charge card related fees and charges can further increase profitability, such as annual fees for issuing the credit cards, late fees, transfer fees, over-the-limit fees, and assorted other miscellaneous charges. In addition to the paying of accrued interest, cardholders are also subject to transaction fees for obtaining cash advances which may approach up to about four percent (4%) of the total transaction amount, and may additionally be subject to a higher interest rate than that which applies to purchases. These fees generally apply from the date of posting the advance, even if paid in full upon presentation of the statement. Furthermore, it should be appreciated that when a charge card is utilized for payment within a transaction, the merchant is also subject to fees levied on the transaction by the payment card issuer, and often the acquiring bank. Typically, these transaction fees comprise a fixed fee per transaction in addition to a predetermined percentage of the transaction amount, such as from between about one to five percent (1% to 5%), and subject to monthly minimums.
A variety of charge cards exist which are characterized by differences in the allowable use of the card and the procedures for charging fees. For example, charge cards such as American Express®, and Diners Club®, have no predefined credit limit, but require that the cardholder pay the outstanding balance upon presentation of the statement, with certain exceptions. Issuers of charge cards may also assess cardholder annual fees, for instance up to one hundred dollars ($100) or more. Large retail merchants, such as department stores and gasoline companies, often issue “in house” credit cards to encourage patronage at that particular merchant establishment, or an associated group of merchants. In addition, various charge cards differ in the methods and amounts by which merchants are charged transaction related fees.
The operation of a traditional payment card-processing environment involves the payment of fees by both transaction parties, although these fees are generally assessed in different ways. Each transaction party, for instance purchaser and merchant, is represented by a financial institution such as a bank, savings and loan, credit union, charge card vendor, or other form of financially capable institution. The cardholder is associated with the issuing bank, or institution, and the merchant is associated with the acquiring bank, or institution. The merchant is hereby defined as any entity, other than the issuing bank, or institution, which accepts a form of payment card.
Alternatives to charge cards have been created which reduce the overall risk of theft and fraud in specific situations. Perhaps the best examples of these alternative are stored value cards and debit cards. Stored value cards are exemplified by gift cards and prepaid cards which are purchased from specific merchants and service companies. Debit cards are utilized for the purchasing of good and services in a physically similar manner to a charge card or credit card, however, charges for the purchases are automatically deducted from an associated checking account.
It will be appreciated that debit cards are not subject to periodic billing statements and accumulated finance charges because funds are directly withdrawn from an underlying cardholder account, specifically a checking account. Prior to obtaining a debit card, therefore, the prospective cardholder must establish a checking account and deposit monies to establish a checking account balance. The ability of an individual to qualify for a checking account at a bank is subject to certain regulations imposed by government and policies developed and enforced by the issuing bank. Terms for establishing a checking account typically include establishing a permanent residence address, submitting a form of government issued identification, and the submitting of a qualifying application with a minimum opening deposit. As a result of these qualification issues, many individuals are unable to qualify for a checking account and, therefore, are unable to obtain an associated debit card.
In addition to providing checking accounts and debit cards, financial institutions often offer credit extension services, such as the issuing of charge cards and the establishment of checking account overdraft protection. However, it will be appreciated that additional qualification requirements must be met for these credit extension services, and individuals that do not qualify for a checking account will generally not qualify for these services.
A number of persons who technically qualify for a checking account may lack either the ability or the discipline to maintain accurate transaction records or modulate spending in accord with their available funds, leading therefore to overdrafts and the concomitant fees and eventual rejection of the transaction for non-sufficient funds (NSF). Prospective cardholders may also lack acceptable identification or access to the bank itself for the posting of covering deposits. In addition, the checkbook of an individual may be stolen and the checks contained therein illegally tendered to access the account of the individual for executing a fraudulent purchase transaction. Depending on the bank and the circumstances, the individual is typically reimbursed fully or partially for the loses if they followed the stated bank procedures for card use and timely notification. Bank losses as a result of theft and fraud are becoming increasingly significant, and these costs are borne by the fees paid by the transaction parties executing valid transactions. In the modern era of computers, it has been demonstrated that the unscrupulous computer expert is capable of acquiring the necessary information regarding an individual's checking account such that they are able to access bank records, execute funds transfers, and write “electronic checks”, such as those utilizing protocols according to the “automated clearing house” (ACH) protocols.
The debit card essentially combines access to a checking account with the electronic processing functions and the ease of use and acceptability of a credit card. The debit card is processed using the same equipment and general merchant procedures as those utilized in processing credit cards, and subject to the same levels of merchant acceptance. In contrast to a credit card, however, the loss or theft of a debit card, or the illegal use of the underlying information without consent or knowledge by the cardholder, is typically treated by the bank or institution in a manner different than an equivalent credit card. For example, the unauthorized use of a lost or stolen credit card typically subjects the cardholder to a maximum liability of fifty dollars ($50). However, the cardholder of a debit card which is subject to regulations under the federal Electronic Fund Transfer Act may have a legal liability which can greatly exceed fifty dollars ($50). Cardholders are often subject to a fifty dollar ($50) maximum liability if the thefts are reported within two business days. As a matter of policy, certain card issuers, for example VISA™ and MasterCard™ presently cap debit card liability at fifty dollars ($50) for unauthorized charges. Beyond the two day reporting period, but prior to sixty (60) days having elapsed after statement mailing, the liability increases to five hundred dollars ($500) excepting special circumstances such as extended travel or hospital stays. Moreover, the liability outside of these conditions may include the entire balance of the checking account, and may include losses associated with overdraft lines of credit. The failure to report any error in a statement within sixty (60) days of mailing relieves the bank of any obligation to investigate.
Issuing banks, or institutions, often charge monthly fees of up to approximately five dollars ($5.00) or a transaction fee of up to one dollar and fifty cents ($1.50) per debit card transaction, or a combination thereof. It will be readily appreciated that performing transactions with a debit card provides added financial benefits to the issuing bank in comparison with check transactions. The cost of processing a physical check exceeds that of processing a debit card, however, the charges levied on participants utilizing a debit card are typically in excess of those collected for utilizing checks. Debit card transactions are more difficult for a cardholder to record than a checking transaction, as a register and writing implement are necessary along with a separate action to record the transaction. Debit card transactions are thereby often not recorded in a timely manner, wherein the cardholder has a higher probability of entering an overdraft non-sufficient funds (NSF) situation for which additional penalty fees and percentages may be recovered by the bank. If the checking account is protected by overdraft protection, the NSF charges may be avoided, however, the cardholder is typically then subject to additional bank charges and interest.
A further alternative to a charge card, or debit card, is a stored value device such as a gift card. In recent years gift cards have partially supplanted gift certificates as a merchant redeemable value instrument. Gift cards are typically sold in various fixed denominations, for example twenty dollars ($20), fifty dollars ($50), or one hundred dollars ($100) by a merchant or service provider to a customer. The recipient of the gift card may use the gift card as full or partial payment to purchase goods and services with the merchant. One especially attractive advantage of the card format lies in its ability to retain partial value. When a traditional gift certificate is utilized to purchase items with a collective purchase price and applicable tax that is below the face value of certificate, the remaining certificate value is typically returned to the recipient in the form of cash. The merchant, therefore, does not fully benefit from the whole value of the certificate. A gift card utilizes a magnetic stripe, typically on the backside of the card, which contains encoded information linked to the value of the card. The value of the gift card may thereby be reduced by a transaction amount, such that the merchant is assured of expenditures by the individual which match or exceed the gift certificate. Although the implementation of a gift card is merchant dependent, the validity and value of a gift card are typically maintained within a database maintained by the particular issuing merchant. A primary limitation of gift cards is their inability to be utilized for making purchases with different non-related merchants. The gift card is limited to use with the merchant for which the card was purchased, because at the time of purchase a cash transaction was performed by the card purchaser in exchange for the denomination of the gift card by the particular merchant. Therefore, the payment for goods and services has already been made to the merchant and the gift card serves only as a token for tracking cumulative exchange of prepaid credit for goods. In recognition of this aspect of gift card use, taxing authorities typically recognize the taxable event for a gift card at the time the gift card is redeemed, instead of at the time of gift card purchase. It is generally accepted that depositing money, such as in a bank account, is not a taxable event in that no exchange has been made. During the time which elapses between gift card purchase and subsequent use, the monies are effectively retained by the merchant. Gift cards are not renewable and their related balance is thereby subject only to depletion as purchase transactions are executed. The gift card value declines with each purchase until a transaction occurs in which the balance reaches zero, at which time the card is typically retained by the merchant for subsequent destruction.
The use of prepaid cards is a further alternative to debit cards and gift cards. A prepaid card is a stored value device which is similar to the gift card, yet generally includes a value recharge capability. Prepaid cards are most often utilized by the purchasing individual, although this is not generally a limitation of the card itself, a prepaid telephone card is a common example. Similar to gift cards, prepaid cards are similarly constrained to redemption with the merchant, or vendor, associated with their purchase. For example, a prepaid telephone card is issued by a telephone carrier such as AT&T™, MCI™ or Sprint™, although it may be sold by an unrelated third party, usually referred to as an “agent”. Prepaid telephone cards enable the calling party to place a long distance telephone call such that the cost of the call is deducted from the unused balance of the prepaid telephone card. The use of prepaid phone cards eliminates the drawbacks associated with depositing coins in a payphone, or the expense associated with utilizing an operator to place the call. Infrequent long distance callers have been able in many situations to discontinue long distance services that charge baseline service fees of from three dollars ($3) to seven dollars ($7) per month in deference to the use of a prepaid card. In addition, the card holder at the time of purchase, is intrinsically aware of the cost per minute as a result of the phone card being typically sold for a given number of calling minutes at a predetermined cost. The caller also is generally informed of the remaining balance on the card in units of calling minutes. The vendor of the prepaid telephone card gains an advantage by receiving up-front money for services rendered at some time in the future, if at all.
Prepaid cards are also commonly utilized for rendering services in association with public transportation such as “light rail”. When utilized for prepaid transportation, the commuter may purchase a prepaid card with a predetermined value, such as twenty dollars, ($20), subsequent to which they may use commuter services between various points, at various times, while the card acceptance systems of the transportation authority calculate the cost for each element of the trip and concomitantly deduct that amount from the balance of the prepaid commuter card. It is common for prepaid cards, such as phone cards, to include a “refill” capability, wherein the remaining balance on the prepaid card may be incremented in response to money tendered.
A further example of a prepaid card can be found in the gaming industry to eliminate the necessity of the gambler to carry a large number of coins from one machine to another. The user of the these cards need never touch the physical coins and may transact all their gambling through the use of the card. Unlike coins, the gaming cards can be utilized with gaming machines of any denomination, for example allowing the gambler to move from a quarter slot machine to a dollar video poker machine without first exchanging quarters for dollars. The proprietary prepaid gaming cards are often given an initial value at the time of purchase, for example in exchange for a cash payment to the casino, a given sum being transferred from a credit or debit card, a transfer from a checking account via an ACH transaction, or from a line of credit extended by the casino to the customer. The gaming card can typically be utilized by the customer as they freely move from one area of the casino to another, “purchase” gaming chips, play electronic games of chance such as slot machines, or video poker, or make purchases in restaurants, shops, showrooms, and so forth using the proprietary prepaid card is if it were cash. Prepaid gaming cards provide the added benefit that winnings may be automatically applied to increment the card rather than requiring a collection of coins to be carried and redeemed. Once the cardholder finishes gaming, or otherwise completes the activities for which the proprietary prepaid card can be used, the balance may be paid in cash, or transferred to a line of credit account within the casino, a debit or credit card, or applied to a checking account for the individual via an ACH transfer. Furthermore, the casino cards provide a non-related benefit wherein the casinos are able to track the extent of an individuals gambling, whereas a concomitant level of perks, such as free nights, dinners, entertainments, and so forth may be awarded.
Electronic equivalents of all of the aforementioned forms of payment cards have been implemented or suggested, such as by the use of “smart cards”, electronic wallets and so forth. It will be appreciated that the electronically enabled forms of payment cards are generally subject to similar usage processes and problems as their aforementioned plastic card counterparts. Smart cards typically utilize an electronic microchip to serve the twin purposes of encrypting the data stored on the smart card, and to modify that data as a function of card usage. By way of example, the balance recorded within the smart card is typically incremented or decremented in response to the transactions for which the card is used. It will be appreciated, however, that the use of smart card technology poses a number of serious problems. One problem is with the vulnerability of the data encrypted within the device. Smart card cryptographers have been able to use various attacks, such as those including differential power analysis, to theoretically break most known microprocessor cards without any knowledge of the underlying cryptographic algorithms. Applications, such as e-purse and electronic wallets, which rely on the physical security of smart cards, may be vulnerable to attack and the risk of attendant loss associated with fraud. Insiders within the smart card industry have breached every smart card chip to which they have turned their attention.
Account reconciliation and the maintenance of audit trails are not typically provided in connection with the use of smart card technology when deployed as disposable or rechargeable stored value cards. For example, the VISA Cash Card™ features both disposable cards loaded with predetermined values and a card which is capable of being recharged at specialized terminals and selected ATMs. The cash card device does not, however, provide the capacity for account reconciliation, nor does it provide an audit trail. The cardholder is thereby left performing these functions manually.
Stored value cards typically suffer from a lack of safeguards which are currently inherent within traditional payment card processing architectures. These missing safeguards are readily apparent in the areas of authentication, authorization and settlement. Authentication refers to the process of determining whether or not the card being presented is a bona fide card from the issuer by the bona fide cardholder. Authorization examines the availability of funds which exist for the execution of the transaction. Settlement describes the process by which the acquiring institution, representing the merchant, is paid the face value amount of the transaction by the issuing institution on behalf of the cardholder, less any processing fees such as a discount fee, which are orchestrated by the transaction processor upon the delivery of goods or services. The process is additionally subject to charge-backs, refunds, and credits. Charge-backs result when the issuing institution refuses the transaction, as a result of which a charge is posted to a merchant account which reverses the original transaction and is often subject to additional charge-back fees. Transaction refunds and credits occur when purchased merchandise is returned to the merchant by the cardholder for a refund, or a credit is offered to the cardholder by the merchant as a compromise. The aforementioned protection mechanisms are inherent within the traditional card processing infrastructure and protect both the merchant and the cardholder by reducing the risk of fraud. It should be appreciated that the current card processing infrastructure has enabled more than one hundred fifty seven million (157×106) American cardholders within over eighty million (80×106) households to utilize over one point five billion (1.5×109) debit, credit, and charge cards through more than twelve thousand (12,000) financial institutions. The ACH infrastructure each year, for example, processes more than five billion (5×109) transactions with a total value of more than sixteen trillion dollars ($16×1012).
It will be appreciated, therefore, that consumers and merchants can benefit from the adoption of new systems and methods which provide ease of use while not requiring the existence of an underlying charge or checking account. The present invention satisfies those needs, as well as others, and overcomes the deficiencies of previously developed payment instruments to provide for the ubiquitous enablement of electronic currency through the existing payment architectures and infrastructure.